State Bank of India has launched a non-discretionary and non-discriminatory scheme of one-time settlement (OTS) scheme to give relief to micro, small and medium enterprises (MSME) borrowers. The bank is also offering incentives to borrowers. It will give 15 per cent and 10 per cent discount on the OTS amount to those borrowers who make full payment within one month and three months, respectively, from the date of approval of the OTS.

The bank has recorded an increase of Rs 3,902 crore in bad loans in its MSME portfolio in the first nine-months of the current financial year.

As per the bank official, chronic, non-performing assets (doubtful or loss) in the MSME sector with investment in plant and machinery of up to Rs 10 crore are covered under the OTS scheme. In the first nine-months of the current financial year, the highest net increase in bad loans for SBI was in the corporate portfolio (Rs 6,469 crore), followed by the MSME portfolio. It is difficult to give corporates an OTS as banks usually have large exposure to them. Hence, banks prefer taking the legal recourse to make recoveries, a senior banker added.

Overall, SBI has recorded a net increase of Rs 14,772 crore in bad loans in the first nine-months of the current financial year.

A borrower has to pay 25 per cent (including the 5 per cent already deposited at the time of application) of the compromise amount upfront on sanction of the OTS by the bank. The balance amount of the compromise has to be paid within six months of the date of sanction without interest or 12 months with interest.

MSME advances accounted for 16 per cent of the bank's overall lending portfolio of Rs 8,46,266 crore as on December-end 2011.